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Explaining total cost, variable cost, fixed cost, marginal cost, and average total cost for Econ. 1
Terms in this set (17)
How is the cost of energy a fixed cost and a variable cost?
When energy is used to maintain fixed plant, equipment, etc... independent of the output produced it is a fixed cost.
Since energy used to produce product goes up or down depending on the amount of product produced it is a variable
What happens to average total cost curves when energy is a fixed cost and energy prices rise?
When fixed costs increase so will average total costs. The ATC curve will shift upward
What happens to marginal cost curve when energy is a fixed cost and energy prices rise?
The Marginal Cost Curve is not affected if the variable cost do not change.
What is a fixed inputs
those inputs where quantities do not change when the quantity of output changes (the building, equipment, truck...)
How do you calculate Marginal Cost?
Change in Total Cost divided by quantity of product produced.
How do you calculate Variable Cost?
Quantity of workers times cost of each worker plus Quantity of product produced times cost per unit produced.
How do you calculate Total Cost?
The sum of variable cost and fixed cost
How do you calculate Average Fixed Cost
One method is to divide total fixed cost by the number of units produced
Another method is to find the difference between Average Total Cost and Average Variable Cost
How is Average Total Cost Calculated
Total cost divided by the number of units produced is the Average Total Cost
How is Total Variable Cost calculated
Variable cost divided by the number of units produced is the Total Variable Cost
How is Average Variable Cost calculated
Total Variable Cost divided by the number of units produced is the Average Variable Cost
What is TVC
TVC stands for Total Variable Cost
What is AVC
AVC stands for Average Variable Cost
What is ATC
ATC stands for Average Total Cost
What is AFC
AFC stands for Average Fixed Cost
What happens to Average Fixed Cost as output increases
AFC declines as output increases due to spreading effect. The fixed cost is spread over more and more units of outputs as output increases.
What happens to Average Variable Cost as output increases
AVC increases as output increases due to the diminishing returns affect.
diminishing returns to labor cause costs to increase as additional units of output increase because it cost more.
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